FICO

We rate FAIR ISAAC CORP (FICO) as a Reduce with a composite score of 48.3/100 at a current price of $1237.97. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (63th percentile) and quality (57th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (31th percentile) and value (49th percentile) tempers our overall conviction. We assign a Narrow Moat rating (52/100), Low uncertainty, and Poor capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

FAIR ISAAC CORP holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 48.3/100 places it at rank #2291 in our full 7,333-stock universe. With a $40.1B market capitalization, FAIR ISAAC CORP operates at meaningful scale within the Services sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 14%, though momentum at the 53th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 83% (+23.4pp vs sector) narrow to operating margins of 47% (+43.9pp vs sector) and net margins of 32.1%, yielding a gross-to-net conversion rate of 39%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $1237.97, FAIR ISAAC CORP is trading near fair value based on current fundamentals. Our value factor score of 49/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 48.5x (a 104% premium to the sector median of 23.7x), EV/EBITDA of 35.8x (at a premium), P/S of 15.6x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Low uncertainty rating to FAIR ISAAC CORP. The company exhibits strong financial stability with a beta of 1.01, and a stability factor in the 63th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 48.5x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 63th percentile and quality factor at the 57th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 83% provide a buffer against cost pressures; above-average stability (63th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate FAIR ISAAC CORP's capital allocation as Poor. Key concerns include low returns on equity (-50.5%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — FAIR ISAAC CORP significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, FAIR ISAAC CORP receives a Reduce rating with a composite score of 48.3/100 (rank #2291 of 7,333). Our quantitative framework assigns a Narrow Moat (52/100, trend: stable), Low uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 51/100.

Our analysis does not support a constructive view on FAIR ISAAC CORP at this time. The combination of the current quantitative profile, low uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.